पाठशाला Pathshala · नियम Niyam, Law and compliance · Lesson 10 · Start

Bank accounts, KYC and keeping the company’s money separate

The bank account is the company’s first internal control. Open it properly, decide who can move money and how, and never let a founder’s card stand in for it.

Pathshala, The Founder Library · 11 October 2026 · 7 min read

Rows of metal lockers with keys in their doors form a grid in a dim corridor. — Photograph: Jan van der Wolf · Pexels

For the first four months the company’s rent, cloud bills and first salaries went out from a founder’s savings account and a personal credit card, because the current account took three weeks to open and nobody wanted to wait. At the first audit the accountant spends two weeks separating personal spending from company spending, the founder cannot prove which of ₹11 lakh in transfers were loans to the company, and the seed investor’s lawyer asks why the books start in month five.

This lesson covers opening the company’s accounts and getting through the bank’s KYC, deciding who can sign and approve, the payment-approval matrix that turns a founder’s instinct into a control, keeping the company’s money and the founders’ money apart, and what an auditor will check. The figure lets you set your own approval bands and test any payment against them.

Opening the current account

Open the current account in the week the certificate of incorporation arrives, and apply to two banks at once if you can, because one of them will be slow. Until the account exists, nothing should be spent on the company’s behalf except what the founders are prepared to document as a loan or a reimbursement. The bank’s checklist comes from the Reserve Bank of India’s know-your-customer directions. Paragraph 30 of the Master Direction on KYC, as last updated in August 2025, lists certified copies of the certificate of incorporation, the memorandum and articles of association, the company’s PAN, a board resolution and any power of attorney granted to transact on its behalf, identification documents for the beneficial owners, managers, officers or employees holding an attorney to transact, the names of senior management, and the registered office and principal place of business if they differ.

In November 2025 the RBI consolidated its KYC rules for banks into the Commercial Banks Know Your Customer Directions 2025, last updated on 1 October 2026 when checked on 10 October 2026, and repealed the 2016 direction. Your bank’s own checklist applies the current text, so ask for it in writing before the visit and bring everything at once. The one definition every founder should know is beneficial owner. For a company it is the natural person who, alone or with others, holds a controlling ownership interest, defined in the 2016 direction as more than 10 per cent of the shares, capital or profits, or who exercises control by other means. Each co-founder above the line is a beneficial owner and will be asked for identity documents. So, at the next round, may an angel or fund that crosses it.

Signatories and the board resolution

The bank acts on a board resolution that opens the account and names who may operate it, alone or jointly, up to what amounts, and who may add or remove net-banking users. Write the resolution with the approval matrix in mind rather than copying the bank’s template. Name at least two signatories so the company is not stuck when one founder is ill or travelling. Make anything above the top band require two of them. Give the finance lead or accountant a maker role in net banking, preparing payments that a signatory approves, rather than a signing role.

Hands hold a set of cheques beside an open laptop. — The board resolution decides whose signature moves money and up to what amount. Photograph: cottonbro studio · Pexels

Some decisions are not for signatories at all. Section 179(3) of the Companies Act 2013 requires the board to exercise certain powers only by resolutions passed at its meetings, among them to borrow monies, to invest the funds of the company and to grant loans or give guarantees or security for loans. A proviso lets the board delegate those three powers, by a resolution at a meeting, to a committee of directors, the managing director, the manager or another principal officer, on conditions it sets. So a fixed deposit, a working-capital loan or a loan to a subsidiary needs a minute, either approving it or recording the delegation under which a named person approved it. A bank will often ask for that minute; an auditor always will.

The payment-approval matrix

An approval matrix is a one-page table that says, for each kind of payment and each amount band, who prepares it, who approves it and what evidence must exist before it goes. It is the cheapest internal control a company will ever install, and it is what turns two honest founders and a careful accountant into a system that still works when one of them is in a hurry. The principle is that nobody both creates and approves the same payment, and nobody approves a payment to themselves.

Four kinds of payment deserve their own rows. Approved vendor bills, where a purchase order or contract already exists, need the least friction. New payees and changed bank details need the most, because a common fraud on small companies is an email, apparently from a known vendor, announcing new account details. Confirm every change by calling a number you already had, not one in the email, and send a ₹1 test before the real amount. Payments to directors and founders, whether salary, reimbursement or a loan repayment, are approved by someone other than the payee and backed by bills or a board-approved agreement. Borrowing, investing and lending are board matters under section 179(3).

Write the matrix down, have the board note it, and configure the bank’s net-banking rules to enforce it, so that a payment above the band physically cannot leave without the second approval. A matrix that lives only in a document is a suggestion. Revisit the bands when monthly spending doubles; bands set at seed will create a queue at Series A.

Keeping the money separate

The company’s account pays only the company’s bills. Every exception becomes an hour of an auditor’s time and a line in a diligence report.

The rule has two halves and both are broken constantly. Nothing personal leaves the company account: no family travel, no personal subscriptions, no loan to a founder for a flat deposit. And nothing of the company’s leaves a personal account, except as a documented reimbursement with a bill, submitted within the month and approved by someone else. Get a company credit card or prepaid cards for cloud services and subscriptions, so that the founder’s card is not the company’s card by default.

A heavy round vault door stands open inside a bank. — A vault keeps other people out. A company account also has to keep its founders’ own spending out. Photograph: Connor Scott McManus · Pexels

When a founder does put money in before the account opens, or to cover a gap, record it the same week as either share capital or a loan from a director, with a board minute and a simple loan agreement stating the amount, interest if any and repayment terms. Loans from directors carry their own annual reporting, covered in the [compliance calendar](/library/compliance-calendar-private-limited-company). Money that arrives without a label is the hardest thing in a set of books to explain two years later, and it is always explained to someone who is deciding whether to invest.

What the auditor will look for

A statutory auditor will reconcile every bank account to the books, trace a sample of payments to their approvals and supporting documents, and look for payments to related parties. Since the financial year beginning 1 April 2023 there is a further check. The proviso to rule 3(1) of the Companies (Accounts) Rules 2014 requires a company keeping its books electronically to use software that records an audit trail of every transaction, with an edit log of each change and the date it was made, and ensures that the audit trail cannot be disabled. Under rule 11(g) of the audit rules the auditor reports whether the software had the feature, whether it operated throughout the year for all transactions, whether it was tampered with and whether it was preserved. The trail forms part of the books of account, which section 128 requires to be kept for at least eight financial years.

For a startup this means choosing accounting software with the feature switched on from the first entry, never editing a closed month, and making every correction as a visible new entry. The [bookkeeping lesson](/library/bookkeeping-from-day-one) covers the daily habits; the bank account is where they are tested.

The monthly bank close, in forty minutes

On the third working day of each month, download every bank and card statement. Reconcile each to the accounting software line by line and clear or explain every unmatched item. Check that each payment above the first band has its approval and evidence attached. List any payment to a director or founder and confirm it was approved by someone else and supported by a bill or agreement. Review the net-banking users and their limits, removing anyone who has left. Confirm that no bank details were changed without a call-back. Then send the founders one line: closing balance, burn for the month, and any exception found. Forty minutes a month is what makes the first audit a week instead of a quarter.

Nothing here is legal or tax advice; confirm the current rule with a chartered accountant or lawyer before acting.